Tuesday, May 16, 2017

A better r*

The Chicago Booth Review published here a much cleaned up and nicely formatted version of my earlier blog post on r*. If you missed the original and you're curious about r* issues, or just curious what the heck r* is anyway, this version is better.

2 comments:

Re a permanent zero rate, MMTers tend to be keen on that. Warren Mosler supports the idea. I tried to set out the argument for a permanent zero rate in 200 words here:

https://twitter.com/RalphMus/status/864764070972596224

As for using interest rates to adjust demand, that strikes me as flawed. First, given a recession, there is no prima facie reason to assume the problem is inadequate lending and investment, rather than an inadequacy in some other element of AD. Second, interest rate adjustments do not work all that quickly: up to a year according to one Bank of England article. I set out further flaws in Part III (sections 10 & 11) here:

Thanks to a few abusers I am now moderating comments. I welcome thoughtful disagreement. I will block comments with insulting or abusive language. I'm also blocking totally inane comments. Try to make some sense. I am much more likely to allow critical comments if you have the honesty and courage to use your real name.

About Me and This Blog

This is a blog of news, views, and commentary, from a humorous free-market point of view. After one too many rants at the dinner table, my kids called me "the grumpy economist," and hence this blog and its title.
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!